TY - JOUR
AU - Caldwell,Steven
AU - Favreault,Melissa
AU - Gantman,Alla
AU - Gokhale,Jagadeesh
AU - Johnson,Thomas
TI - Social Security's Treatment of Postwar Americans
JF - National Bureau of Economic Research Working Paper Series
VL - No. 6603
PY - 1998
Y2 - June 1998
DO - 10.3386/w6603
UR - http://www.nber.org/papers/w6603
L1 - http://www.nber.org/papers/w6603.pdf
N1 - Author contact info:
Steven Caldwell
Melissa Favreault
Urban Institute
E-Mail: mfavreau@ui.urban.org
Alla Gantman
Department of Economics
Boston University
70 Bay State Rd, Boston, MA 02115
Jagadeesh Gokhale
Senior Fellow
CATO Institute
1000 Mass. Ave., NW
Washington, DC 20001
E-Mail: jgokhale@cato.org
Thomas Johnson
E-Mail: trjohnson@tamu.edu
M1 - published as Steven Caldwell, Melissa Favreault, Alla Gantman, Jagadeesh Gokhale, Thomas Johnson, Laurence J. Kotlikoff. "Social Security's Treatment of Postwar Americans," in James Poterba, editor, "Tax Policy and the Economy, Volume 13" MIT Press (1999)
AB - Social Security faces a major long-term funding crisis. A 38 or greater percentage increase in the systems' tax rate is needed to meet current benefit payments on an ongoing basis. Tax increases of this magnitude or comparable benefit cuts would significantly worsen what is already a very bad deal for postwar Americans. This paper uses CORSIM -- a dynamic micro simulation model -- and SOCSIM -- a detailed Social Security benefit calculator -- to study this deal. The study finds that baby boomers will, under current law, lose roughly 5 cents of every dollar they earn to the OASI program in taxes net of benefits. For today's children the figure is 7 cents. Measured as a proportion of their lifetime labor incomes, the middle class are the biggest losers, but measured in absolute dollars, the rich lose the most. Out of every dollar that postwar Americans contribute to the OASI system, 74 cents represent a pure tax. The system treats women better than men, whites better than non-whites, and the college educated better than the non-college educated. While the system has been partially effective in pooling risk across households, it offers postwar cohorts internal rates of return on their contributions that are quite low. Those born right after World War II will earn, on average, a 2.4 percent real rate of return. Those born in the early 1970's will average about a 1 percent real rate of return, and those born at the end of this decade will average essentially a zero rate of return.
ER -